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NEWS UPDATES 17 May 2009

Philippines fails to scrap loss-making state firms

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The Asian Development Bank said Saturday the Philippines has failed to follow a commitment to reduce the number of state-run corporations that have been bleeding government coffers dry, reported AFP

The Asian lender said Manila sought ADB technical assistance in 2006 to improve the efficiency of the government-owned or government-controlled corporations that perform socially-oriented services such as maintaining food supply stability or provide basic services in areas including transport, housing and utilities.

State enterprises have been "problematic" with "weak institutional and regulatory frameworks" and "most" have been bleeding red ink, the Manila-based ADB said.

State subsidies or credit guarantees cost taxpayers 80.4 billion pesos (1.69 billion dollars) in the five years to 2004, leading to national budget deficits and accounting for a full third of the country's total public debt, it added.

Last year consulting firms hired by the ADB recommended that President Gloria Arroyo's government merge state firms working in the same sector, such as the Light Rail Transit Authority that runs Manila's overhead rail system and the older Philippine National Railways that services nearby provinces, it said.

The government was also advised to effect the "gradual closure or privatisation" of the state investment firms National Development Co. and Home Insurance Guaranty Corp.

However, "the momentum in implementing the (technical assistance) recommendations waned" after the 740,000-dollar study was completed, and all four entities still exist, said the lender.

The bank acknowledged these measures "are difficult and costly to implement" though they had a "potentially high return." In the meantime it urged Manila to improve corporate governance for these firms, impose "hard budget constraints" on them and clean up their project portfolios.


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